Americans continue to pay down revolving debt balances after all, as pessimism may be curbing consumer credit growth

590 credit cards 2 REUTERS Stelios Varias.jpg

It turns out that Americans are still paying down their credit card balances after all. Last month, the Federal Reserve reported that revolving debt grew by about 3%, which marked the first non-holiday shopping driven increase in card card balances since August 2008. But a report the central bank released today revised that uptick to virtually flat growth -- and it was entirely erased by a subsequent decline in credit card balances in April.

Here's the historical chart for total credit, revolving credit, and nonrevolving credit:

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Besides March, revolving credit levels were also revised in this month's report to show bigger declines in January and February. At month's end, the total balance of revolving credit was just $790 billion -- the lowest level seen since August 2004. That brings revolving credit down 18.9% since it peaked in August 2008. That's pretty incredible: Americans have paid down their credit cards by nearly 20% in less than three years.

Unfortunately, they have more than made up for those revolving debt declines with additional nonrevolving debt over the past several months. Loans for things like autos and education rose at an annualized rate of 5.2% in April. To be sure, the federal government has ensured that those student loan dollars keep flowing: over the past two years its credit holdings have increased by 185% to $359 billion.

It will be interesting to see if nonrevolving credit growth continued in May. Through April it had grown for nine months straight. But April was a relatively strong month for auto sales, while May was much weaker. Fewer auto sales could threaten this trend.

Of course, if nonrevolving credit growth does slow in May, then overall consumer credit could shrink for the first time in eight months. It has been consistently increasing due to the growth in nonrevolving credit.

Recent revolving credit results might shed light on consumer psychology. Even though it declined again in April, its drop was relatively small at an annualized rate of 1.4%. The modest drop in the context of a negligible increase in March could indicate that Americans were anticipating a stronger economy at that time, but started becoming more pessimistic in April and began cutting their spending to pay down their debt again. From what we've seen of May's economic data so far, that attitude likely prevailed last month and may have even had a more pronounced effect on credit.

Image Credit: REUTERS/Stelios Varias

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